Ask HN: Sue after poorly managed SPAC?

SPACs are, in practice, a Hail Mary for companies with little hope of ever going public the traditional way because they’re just not that attractive to real investors. Therefore, if a company goes public via a SPAC, you should assume they’re in a very weak position. So, while you could conceivably sue (and perhaps get a settlement out of them) it’s going to be a pretty poor outcome for you even in the best case scenario.

If you look at buzzfeed for example (if I had to guess, that’s the company you’re with) they’re basically circling the drain and the SPAC was a last ditch effort: if the burned employees of buzzfeed sue them, where’s the money going to come from? Buzzfeed can barely keep the lights on.

If they’re offering to work on contingency, go for it, nothing to lose, but don’t pin your hopes on seeing anything close to your unrealised gains.

If you’re not with buzzfeed, read pieces like this: https://www.nytimes.com/2022/04/25/business/media/buzzfeed-e...

Thanks for the link, I hadn’t seen that (not from buzzfeed). I agree the company won’t be in a strong financial position to pay out a huge penalty, but they have plenty to pay me a settlement for a fraction of my damages (real money to me and insignificant on the scale of a public company).

Interestingly, the law firm we’ve spoken too seems to want to avoid arbitration (the opposite of the buzzfeed case). Maybe that depends on the arbitration terms and end goal. (For us I assume it would be a pre-trial settlement.)

If the arbitration is non-binding, your lawyers are just trying to save you money.

Not the original poster. I had no idea that Buzzfeed was even public. But it looks like they are attractively priced now. They have positive earnings compared to a lot of other SPAC's that never hit profitability and have an extremely low PE of 3.3. What gives. Does the market not see any chance to rebound to the IPO price of around ~10.

Recommend speaking with the firm willing to take the class action work, as well as having a review with an attorney specializing in securities law (consult cost should be less than $500). They'll (class action firm) work on contingency (typically, so you're not out of pocket, but they will take ~25-35% of whatever is recovered), and are a better gauge at your ability to recover damages than you are. Also, recovering anything is better than recovering nothing. RE career implications, someone will always judge you for something. Don't work for someone who judges you for attempting to protect yourself.

(not an attorney, not your attorney, not legal advice, educational purposes only)

Thanks. They have offered to work on contingency. Now it just requires someone to step up to be lead plaintiff in the case. Most people want to stay anonymous and only want to participate if someone else does all the work.

It's good you know who the lead plaintiff is now.

Yes, though lead plaintiffs can be compensated for the inconvenience...

F-em, the less plaintiffs the bigger chance of settlement.

Lead plaintiffs regularly get more out of class action than the rest of the class.

I’m sorry you were hurt by this. SPACs in general are toxic, the vast majority are down from their listing price after 6months. A business going through a spac generally isn’t strong enough to go through the normal IPO process and the SEC has agreed that they’re generally poor for everyone but the bank and investors pushing it and have already started regulating them.

How exactly was he hurt? He worked for a low valued company that was briefly viewed as valuable. It returned to its real value shortly thereafter. He had the same net worth he had had a month before. He just wants a piece of the SPAC scam money. And I encourage him to go get some of the pie for himself, but he isn't a victim.

Okay with you if your brokerage stops you from selling when your stocks are up?

That has happened to me literally hundreds of times in my life. The real difference is my stocks aren't SPAC scams, so I'm not playing some pump and dump game needing to sell at the perfect moment, and then crying foul when a scam within a scam didn't go my way.

edit: I'm posting too fast. So my reply is here.

You didn't orchestrate the game. I get it. But your moral compass is clear when your first instinct is to try to recoup money stolen from SPAC investors for yourself, rather than for the retail investors who were actually harmed by it. You in no way were harmed--you had a couple hundred grand in stock before the IPO, and a couple hundred grand now. You're just mad that executives and Hedge Funds got to scam people and not you. That said, I wholeheartedly endorse you going after them. But go after them like a wolf, not a sheep.

I’m just an engineer who got stock as compensation. I built real things. I wasn’t playing a pump and dump game. I just wanted a fair shot at selling my stock before insiders tanked it. I would’ve preferred a different type of exit but it wasn’t my choice.

He was legally hurt. You're talking about morals.

I don't think the phrase "I'm sorry you were hurt" is appropriate for people who weren't morally hurt. "I'm sorry you were hurt" is appropriate for the retail investors who were bilked out of their saving by his company.

That’s your opinion though. I think employees who are sold on the dream and who are largely compensated by RSUs are hurt morally by their management and investors who push a garbage stock. People are getting mortgages in places like Seattle calculated on RSUs because of how common a compensation scheme it is. You can have your opinion but I don’t think it’s well considered. Both the retail investors and employees are hurt by garbage spacs.

Edit: You're -> Your

Your timeframe on this is way off. He was not compensated at SPAC IPO price levels. The typical employee has been getting RSUs for years and years at valuations several times lower than their IPO level. No one took out a mortgage against stock that was valuable for less than two weeks.

The only part that I think makes him a victim is the idea that management pulled a scheme against his will and he got nothing for it while still having to incur the stigma of being a part of it.

If you take out a loan on illiquid asset like RSU then your bank is the one taking advantage of you. Like the housing crises where banks gave out mortgages to people that couldn’t afford it and everything collapsed.

Gambling your house on the success of a single company is wildly irresponsible.

I'm not sure how to respond to this. I don't have or do any of these things and I'm not the person who would need to hear this. I do agree with your thoughts, I just still feel bad for the people who have done this, and I know about from reading about it.

If they will work on contingency, sue them. In the non SPAC world, investors sue all the time when the stock takes a major hit. Here they deprived you of you ability to sell to suckers. If the CEO and others got to sell at opening price - sue them for everything you can think of

Thanks, that’s where I’m leaning. It does seem like some investors were able to sell immediately based on social media posts. The price even had a nice pop after listing. Would’ve been nice to catch some of that before it started a long trend down.

I like the quote from the movie Heat: “He knew the risks, he didn’t have to be there. It rains you get wet.”

SPACs are a high risk way of going public and nothing is guaranteed.

You could certainly sue, it might takes years and money from your pocket to get a judgement you’ll never collect a dime on, but yeah, you can sue.

If the company goes bankrupt from the lawsuit, then there's no money left for anyone. Private equity will pick up the husk for pennies on the dollar.

> If the company goes bankrupt from the lawsuit, then there's no money left for anyone.

Bankruptcy means there isn't enough money for everyone, not that there's no money.

It goes to the debt holders first. Shareholders get wiped out.

Would plaintiffs in a lawsuit come before debt holders if their claim is based on shares they couldn't exercise?

Assuming they won the lawsuit, the plaintiffs are creditors. IANAL, but the fact that the lawsuit was over the liquidity of shares shouldn't be relevant if damages were awarded.

https://www.investopedia.com/ask/answers/09/corporate-liquid...

> Should the debtor have a pending lawsuit against them, the victim is often positioned as a preferential creditor pending the outcoming of court proceedings.

For comparison, I worked for Spotify and had shares when they direct-listed. First, they transferred shares from their ledger to Computershare (they were fine, but the website felt like it was made 15 years ago). From there, Spotify had an arrangement with Morgan Stanley to transfer the shares to their books. I was able to trade on the first day, but it had to be broker-assisted (they charge $120). Once the shares were with MS, it was easy enough to transfer them out to a discount brokerage.

The whole process was fine-ish, but I had to read things carefully, and I wasn't thrilled with fees from MS, but the process for transferring shares anywhere else was more complicated. Remember that these are unlisted shares, so transferring them is weird.

Thanks for this comparison. This sounds like what I’d expect: possible to sell on the first day though maybe not cheap or easy. We weren’t even told where our shares were until after they started trading. Turns out they were at a sort of holding company and the only thing to do was transfer them out (no way to sell). They were not made eligible for transfer until multiple days after trading started.

And it's not like there was a 180-day lockup.

There's a lot of good advice on here. Personally, I'd continue engaging with the firm interested in a class action, and as someone suggested, find another lawyer for a second opinion.

If nothing comes from this, I'd think of it as the company was desperate, so it was either going to be picked up for cheap by PE or go public via a SPAC and all the shadiness those come with, so this was the expected outcome at this point. Those paper gains would have been hard to realize.

You selling immediately when they launch would have been the opposite of what they wanted to achieve. Which is lots of buyers pushing the price up.

I haven’t seen a single SPAC do well after a week though. They all drop like flies. There’s a reason why they don’t go through IPO.

Right, which means they are incentivized to not give me access to my shares which I’m entitled to. Maybe not in their best interest for me to sell, so maybe fiduciary duty is the wrong thing. Seems like they can’t block me from selling. There must be something illegal with that.

Not necessary. You need to talk to a lawyer. No one here can give you legal advice.

It’s a pretty niche area of law from what I can tell. Most lawyers familiar with SPACs just set them up (already a relatively small area). Most securities lawyers familiar with similar suits don’t have SPAC experience. I’d welcome any leads on lawyers.

The independent lawyers I’ve talked to say something like “sounds like you could sue, but I’m not familiar with that area of law.”

Then it becomes a question who has more money because they will do everything in their power to drag this on. I think you know the answer to this.

> Seems like they can’t block me from selling

Waaaay back in 2000 I bought shares in lastminute.com which was at the time pretty much at the height of the .com boom.

Great move on my part (not).

There was no way for retail investors to dump their shares quickly IIRC as you needed your paper(!) share certificate in order to be able to sell. Institutional investors were able to dump their holdings quickly, us suckers were stuffed.

"Lastminute became a symbol of the dotcom boom and bust as its shares hit a high of 511p after floating at 380p in March 2000, only to slide as low as 80p a month later"[0]

I have the share certificate kept safe as a reminder not to be so stupid again.

[0] https://www.theguardian.com/business/2014/dec/16/lastminute-...

Not as a criticism of the OP, but assuming there's no lockup, wouldn't it make sense to buy put / sell "covered" call options as "insurance" on the price. Of course that comes with a premium, but I wonder what it would have been at the "opening" price.

I tried but couldn’t find options that early. Working with large brokerages and they said options wouldn’t be available for weeks or months. Not sure if that’s always the case or if the stock was just too small.

That's fairly common, yeah. There is a list of hard rules and requirements for when options become available after the IPO, and it is very variable.

From a personal observation, I've noticed that for most IPOs i was looking at over the past few years, options became availavle only at least after a few weeks since the IPO date. Some took even longer.

I have no idea about your odds of winning or whether it is worth the hassle… BUT, I doubt that suing will make much difference in your career. A lot of hiring managers won’t google you. Those that do may not care. I’m not saying NO ONE will care but my hunch is that most won’t.

> I had no lockup but communication from the company and setup were extremely poor so I was not able to sell my stock immediately.

yikes. this is not a good look. maybe it will turn out that you actually dodged a bullet here.

If you've already talked to a lawyer about it, there's probably not much we can tell you that will be more useful than that.

The downside is you will waste a lot of time and money and will ultimately accomplish nothing. Not what you want to hear but it’s the truth.

SPACs are mostly scams and most have done very poorly. You got caught up in one, reap what you sow.

Thanks for the dose of negativity but I left long before SPAC was the path and I’ve already sold for more than I ever expected the stock to be worth. The question is, should they get away with mishandling my stock to their benefit.

Seems like they already have.

> reap what you sow.

That seems unfair though, and highlights really the key issue. That idiom is about accepting the eventual outcomes of your own actions. But most people who hold equity are impacted by the the choices of a small minority of powerful players. The board and some C-level execs are the only people in a position to choose whether to pursue this path or influence how it is managed or administered. If those parties unloaded their shares in those early days while intentionally preventing the pool of current/former employees from selling theirs, that seems shady.

> SPACs are mostly scams and most have done very poorly. You got caught up in one, reap what you sow.

This. OP is more or less complaining that they weren't able to unload their bags fast enough to maximize their windfall benefit from their involvement in what amounts to a scam perpetrated on public markets by VCs. Hardly a sympathetic character.

Cvent?

Talk to a lawyer

We have. There is a firm with relevant experience that will take the case. Their advice is, not surprisingly, to pursue the case. They want to throw all sorts of things at the wall and see what sticks.

Perhaps you should speak to a disinterested lawyer not connected to the case with relevant expertise. If you can't find one through Google I believe you can contact the state bar and asked to be referred.

When talking to the other lawyer make it clear you want to hire him for a consult or for advice, that you want to lay out what's happening now, have him do some research, and get back to you with an opinion. Ask how much it will cost and, if reasonable, do that.